“We could get bigger positive economic surprises, but it is more likely there will be some disappointments which will cause bond spreads to widen,” he said.
A large number of funds in the IMA Strategic Bond sector have more than 40 per cent of their assets in high yield bonds, according to data from Lipper.
Jupiter’s Ariel Bezalel, manager of the group’s £1.8bn Strategic Bond fund, said “we don’t see much upside” in high yield bonds, in spite of his fund’s high allocation to the sector. He said he is happy to hold on to the bonds for the time being to take advantage of the yield.
Regina Borromeo, manager of the Legg Mason Income Optimiser fund, said her team will “position defensively for any downside as well as adding alpha through credit selec tion when the market turns”. She added the fund had a 20 per cent hedged position designed to limit its exposure to companies defaulting.
Jenna Barnard, deputy head of retail fixed income at Henderson, said the high yield exposure in her funds was a combination of corporate bonds and financila bonds, the latter of which have a better “risk/reward” outlook.
“In light of the improving European macro picture and continuing low defaults, we continue to remain constructive on high yield despite recent spread tightening,” she said.
Threadneedle declined to comment and Old Mutual Global Investors was unavailable for comment.